Institutional-sized businesses in Asia are much more engaged with Sharia compliant products than smaller corporate businesses and small and medium sized enterprises (SMEs), but these two segments also plan to significantly increase engagement in the next 12 months, particularly with debt products.
A research from East & Partners Asia (East) and REDmoney reveals that major banks are “racing to keep up” with the uptake of Sharia compliant products by private sector businesses.
“Along with sovereign Sukuk issuance, which drove over US$7 billion issued in September alone, Sharia-compliant finance has significant momentum in key Asian markets and is here to stay,” says Darryl Ye, East’s senior analyst in Singapore. “Even the Japanese and other non-regional international banks are responding to what is now a major component of the region’s banking landscape.”
Due to the support of Bank Negara Malaysia, Sharia banking penetration among private sector companies in Malaysia was significantly higher – as a percentage of assets and debt – than Indonesia. Institutional sized businesses in Malaysia, for example, report that Sharia compliant loans comprise 18.8% of their total loans, equivalent to an average balance of US$1.33 billion.
In comparison, in Indonesia, the percentage is 7.8%, although the market average total loan balance is US$1.89 billion. As a percentage of outstanding bonds, Sukuk bonds comprise 26.6% of outstanding bonds issued by Malaysian corporates. In Indonesia, Sukuk bonds represent 7.2% of outstanding bonds.